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U.S. Railroads Receive Tough Criticism
Rail Service Delays Hurting Intermodal, Grain and Coal Sectors
 A deterioration in U.S. rail service this year is opening up railroads not only to a potential public relations nightmare but also to possible regulatory action. The rail service delays, hurting grain exporters, coal producers and intermodal shippers, are providing Sens. Jay Rockefeller, D-W. Va., and John Thune, R-S.D., with an ideal backdrop for legislation that would push the STB (U.S. Surface Transportation Board) to move faster on addressing some rail shippers' issues. Those issues include potentially revising the revenue adequacy standard, a metric used by the agency to rule on pricing challenges; mandatory reciprocal switching; and deciding whether contract bundling hampers shippers from bringing rate cases. The STB "needs to change its fundamental perspective," Rockefeller, who chairs the Commerce, Science and Transportation committee, said Wednesday during a Senate hearing on rail delays. "For years I have been pushing (the agency) to be more proactive and to restore the balance between shippers and railroads. They have clearly leaned toward the railroads." The hearing provided the heads of various shipper groups an opportunity to lambaste poor rail service and explain how delays are costing their members millions of dollars. Shipments are either delayed or, because of a lack of capacity, loads must be transported by the costlier mode of trucking, shipper group representatives said during the hearing. Even as service has deteriorated, rail rates have increased more than 93 percent between 2002 and 2012, a pace three times that of inflation, American Chemistry Council President and CEO Cal Dooley said during the hearing. Association of American Railroads President and CEO Ed Hamberger disputed that figure, saying rates for chemical shipments are where they were in 1998 when adjusting for inflation. The hearing comes after the STB held a field hearing in North Dakota on Sept. 4 focused on how poor rail service is hampering grain exports. The issue has risen to the attention of President Barack Obama, who was recently briefed by U.S. Agriculture Secretary Tom Vilsack on how rail delays are preventing farmers from getting this year's harvest to seaports for shipment to Asia, according to The Des Moines Register. "You're doing a great job for your shareholders," Rockefeller told Hamberger. "Why can't you do a better job for your customers?" Hamberger, who heads the main U.S. railroad lobby, took issue with the statement, based on a study released by Rockefeller in November that the top four U.S. Class I railroads were in strong financial health. Hamberger said the study was faulty and said the better metric of health of U.S. railroads was the industry's return on capital. The U.S. rail industry has a 7.74 percent return on capital, while the Fortune 500 average is 12.93 percent, he said. "Railroads are working to restore service to the quality that our rail customers have come to expect," Hamberger said. The harsh 2013-2014 winter caused a backlog of cargo, and demand has grown at an unexpectedly fast pace, he said, adding that average weekly volume in August was at its highest point since October 2007. Changes in the volume mix, such as the growth in crude oil and other domestic energy-related shipments, have added capacity challenges, despite robust infrastructure investment made by the industry in past years. The industry is expected to invest $26 billion in the U.S. rail network this year. Hamberger told JOC.com that he was concerned with several elements of the Rockefeller and Thune bill, known as the Surface Transportation Board Reauthorization Act of 2014. First, language that would require arbitration could hamper overall rail service as mediators might try to fix one service issue and end up exacerbating the rest of network, unfairly hurting other shippers, he said. Hamberger also said the bill could give the STB a sense that Congress wants the agency to rule in favor of some shippers on long-standing issues, such as mandatory reciprocal switching. Forcing the railroads to give some shippers with access to only one railroad's line access to the line of a competitor if it's within 30 miles of the customer's present or future loading spot would hurt service and cost the industry money needed for infrastructure improvements, Hamberger said. The National Industrial Transportation League, which filed for rulemaking on the issue, counters it will bring a "modicum" of fairness to the industry and won't hurt rail service. Rockefeller said during the Senate hearing that the STB has started the proceedings on major issues but still hasn't taken any action, a move he called "a bureaucratic technique" to stall. The bill would also push the agency to decide whether contract bundling hampers shippers from bringing rate cases. Hamberger said such private contracts are outside the purview of the STB and allowing the agency to get involved would send a negative message to private capital markets. In turn, railroads could get hit with risk premiums or see capital shift to other industries. Hamberger emphasized that he wanted to work with the Senate committee on finding common ground. That might be tricky. Rockefeller introduced Hamberger as the head of the "most powerful, under-the-radar lobbying group in DC," and made no secret of his past attempts to curb the rail industry's power. But Rockefeller, who won't seek re-election during the midterm elections in November, admitted at the start of the hearing that while his bill was "good", it probably won't pass. Even so, the hearing and potentially future hearings give Rockefeller an opportunity to shine a congressional light on what he considers the rail industry's unfair advantage. Whether that spurs the railroads to improve service faster remains to be seen. | 
